The Contribution of the Commercial Real Estate Sector to the Canadian Economy
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The Contribution of the Commercial Real Estate
Sector to the Canadian Economy
Prepared by:
The Contribution of the Commercial Real
Estate Sector to the Canadian Economy
Prepared for:
Real Property Association of Canada (REALpac)
and
NAIOP Research Foundation
Prepared by:
Altus Group Economic Consulting
September 2012
About REALpac
REALpac is Canada’s premier industry association for investment real property leaders. Our mission is to col-
lectively influence public policy, to educate government and the public, and to ensure stable and beneficial
real estate capital and property markets in Canada.
REALpac Members currently own in excess of $180 Billion CAD in real estate assets located in the major
centres across Canada. Membership is comprised of the largest owners, developers and managers of com-
mercial real estate in Canada including real estate investment trusts, publicly traded and large private
companies, banks, brokerages, crown corporations, investment dealers, life companies, lenders, and pension
funds. Assets include retail, office, industrial, hotel, multi-residential (apartments) and seniors housing.
REALpac operates in several areas including advocacy, research, financial best practices, standard setting,
publishing, conferences and networking events. Visit us at www.realpac.ca.
About NAIOP
NAIOP represents commercial real estate developers, owners and investors of office, industrial, retail and
mixed-use properties. It provides strong advocacy, education and business opportunities, and connects its
members through a powerful North American network. For more information, visit www.naiop.org.
The NAIOP Research Foundation was established in 2000 as a 501(c)(3) organization to support the
work of individuals and organizations engaged in real estate development, investment and operations. The
Foundation’s core purpose is to provide these individuals and organizations with the highest level of research
information on how real properties, especially office, industrial and mixed-use properties, impact and benefit
communities throughout North America. The initial funding for the Research Foundation was underwritten
by NAIOP and its Founding Governors with an endowment fund established to fund future research. For more
information, visit www.naioprf.org.
© 2012 Real Property Association of Canada (REALpac) and the
NAIOP Research Foundation.
2
About Altus Group Limited
Altus leads the global real estate industry in offering professional real estate advisory services, data solutions
and intelligence about an organization’s assets, generating a wealth of knowledge and insight. With a staff of
over 1,700, Altus has a network of over 60 offices in 14 countries worldwide, including Canada, the United
Kingdom, Australia, Asia and the United States. We operate five interrelated Business Units, bringing years of
experience and a broad range of expertise together into one comprehensive platform: Research, Valuation and
Advisory; Cost Consulting and Project Management; Realty Tax Consulting, Geomatics and ARGUS Software.
Altus clients include banks, financial institutions, governments, pension funds, asset and fund managers,
developers and landlords and companies engaged in the oil and gas industry. Visit us at www.altusgroup.com.
About Altus Group Economic Consulting
Altus Group Economic Consulting was formed in February 2007 when Clayton Research Associates Limited
(est. in 1972) joined in Altus Group. Altus Group Economic Consulting is a group of urban and real estate
economists and provides strategic advice and information to both private and public sector clients across
Canada. The division specializes in real estate market analysis, land use planning issues, property investment
and financing, and building products and technology analysis. Altus Group Economic Consulting has gained
a reputation for astute and independent advice and analysis, based on extensive in-house expertise, a unique
information base, leading edge analytical techniques and extensive contacts throughout Canada.
3Section continued
Table of Contents
Page
Section Number
Executive Summary.................................................................................................................7
Introduction .............................................................................................................................. 11
Research Methodology....................................................................................................12
Macroeconomic Context and Sector Overview................................................ 14
Economic Benefits Measured by This Report...................................................14
The Commercial Real Estate Sector.......................................................................15
Sector Overview...................................................................................................................16
Total Capital Investment in Construction................................................................ 16
Capital Investment in New Construction and Renovation................................. 19
Trends in CRE Sector Capital Investment in Canada, 2007-2011............... 21
Capital Investment by Type of Cost.......................................................................... 23
On-going Operations...................................................................................................... 24
Overall Output of the CRE Sector in 2011............................................................ 26
Economic Benefits of the Commercial Real Estate
Sector in Canada.................................................................................................................... 27
Economic Activity..............................................................................................................28
GDP............................................................................................................................................29
Jobs............................................................................................................................................30
Personal Income.................................................................................................................31
Corporate Profits.................................................................................................................33
Personal Taxes.....................................................................................................................34
Corporate Taxes...................................................................................................................35
Other Economic Benefits..............................................................................................36
Economic Benefits of the Commercial Real Estate
Sector by Region.................................................................................................................... 37
Sector Overview By Region..........................................................................................37
Capital Investment in Non-Residential Buildings................................................ 37
Capital Investment in CRE Sector Buildings......................................................... 39
Economic Benefits............................................................................................................41
Economic Activity........................................................................................................... 41
GDP..................................................................................................................................... 42
Jobs..................................................................................................................................... 43
Personal Income ............................................................................................................ 44
Corporate Profits............................................................................................................. 45
Personal Taxes................................................................................................................. 46
Corporate Taxes............................................................................................................... 47
4Table of Contents
Page
Section Number
Conclusion................................................................................................................................... 48
Glossary......................................................................................................................................... 49
Appendix A:
Detailed Tables for Construction Spending on
Non-Residential Buildings............................................................................................. 52
Appendix B:
Economic Benefits of the Commercial Real Estate
Sector in Canada.................................................................................................................... 60
Appendix C:
Economic Benefits of the Commercial Real Estate
Sector by Region.................................................................................................................... 62
Appendix D:
Description of the Input-Output Model................................................................ 69
5About this Report
All monetary values have been expressed in Canadian Dollars (CAD) in this report.
It is important to remember that this report relies solely on secondary information sources. While every
effort has been made to ensure the accuracy of the data, Altus Group cannot guarantee the complete
accuracy of the information used in this report from these secondary sources.
Disclaimer
This project and report is intended to provide information and insight to industry practitioners and does not
constitute advice or recommendations. The information that may be contained herein has been obtained by
or compiled for REALpac and the NAIOP Research Foundation from sources believed to be reliable, but no
representation or warranty, express or implied, is made by REALpac and the NAIOP Research Foundation,
their directors, officers, and staff or any other person as to its accuracy, completeness or correctness.
Opinions, estimates, conclusions, or other information expressed or contained herein constitute the author’s
judgment as of the publication date, are subject to change without notice and are provided in good faith but
without representation or warranty as aforesaid.
Neither REALpac or the NAIOP Research Foundation, nor their directors, officers, and staff or any other
person assume responsibility for the use of, effect of, or appropriateness of the language, wording, or infor-
mation contained in this publication or any typographical or printing errors or omissions. REALpac, the
NAIOP Research Foundation, and Altus Group, as well as their directors, officers, and staff or any other
person assume no liability for damage or loss arising from the use of information contained herein. REALpac
and the NAIOP Research Foundation are not providing investment, environmental, legal, or tax advice.
Readers are urged to consult their own professional advisors for further confirmation and information.
Copyright
Both REALpac and the NAIOP Research Foundation are the owners of all copyright in this publication. All
rights reserved. No part of this document may be reproduced, transmitted or otherwise used in whole or in
part in any form or by any means, without permission from the publisher(s). Further, no person shall use this
publication, in whole or in part, in any form or by any means, to create any precedent for resale or license
for remuneration.
Contact Information
We welcome your feedback. Please direct any questions, comments, or suggestions to:
Julia St. Michael Elizabeth A. Sherrod
Manager, Research & Environmental Programs Managing Editor, Development Magazine
Real Property Association of Canada (REALpac) Director of Research | NAIOP
T: 416-642-2700 x 237 T: 703-904-7100
F: 416-642-2727 F: 703-674-1482
E: jstmichael@realpac.ca E: sherrod@naiop.org
6Executive Summary
The commercial real estate sector (CRE Sector) plays an important
role in Canada’s economy and standard of living. Development and
construction of commercial real estate buildings, and subsequently
their daily operations, creates directly thousands of jobs and adds
tremendous value to the Canadian gross domestic product (GDP).
In addition, the sector provides workspace for millions of Canadians
and places for Canadians to shop, eat and play.
The Real Property Association of Canada (REALpac) and the NAIOP
Research Foundation approached Altus Group to prepare this study
to quantify the contribution of the commercial real estate sector to
the Canadian economy.
Capital investment in the CRE Sector totalled some $21.6 billion*
in 2011, accounting for about half of the total spending in Canada
on non-residential construction. Some $14.9 billion was spent on
new buildings, the rest ($6.7 billion) accounted for capital improve-
ments, renovations and the upgrading of existing buildings.
The on-going operations of CRE Sector buildings also generated
$3.5 billion in building management fees and almost the same
amount for commercial brokerage fees from sales of commercial
properties in 2011.
Taken together, the CRE Sector makes a substantial contribution to
the Canadian economy, producing $63.3 billion in annual economic
activity. These activities add to the economy in various ways by:
• Supporting 340,000 jobs, many of which are high-paying profes-
sional jobs;
• Generating $18.1 billion in personal income, related to labour
income and other sources of income;
• Generating $12.5 billion in corporate profits earned by many
small and medium companies, and some of the largest pension
funds and insurance companies in Canada;
• Contributing $7.2 billion in personal and corporate income tax rev-
enues for the federal and provincial governments; and ultimately
• Accounting for $32.4 billion in total net contribution to Canada’s GDP.
The CRE Sector also generates an array of other benefits to the
national economy such as the promotion of economic development
and accommodation of employment growth. In addition, properties
owned by the CRE Sector provide substantial revenue to municipali-
ties and school boards across Canada through realty taxes.
* All monetary values have been expressed in Canadian Dollars (CAD) throughout this report.
7Key Economic Benefits
Economic Activity Generated
Brokerage 8.0
Total Economic Activity
3.5
Direct Economic Activity
Building Management
8.1
3.5
Improvements
14.2
6.8
New Construction
33.1
14.9
Total 63.3
28.5
0 10 20 30 40 50 60 70
$ Billion 2011
Contribution to National GDP
Brokerage 4.2
Total Contribution to GDP
1.7
Direct Contribution to GDP
Building Management
4.2
1.6
Improvements
7.8
3.8
New Construction
16.2
6.6
Total 32.4
13.8
0 10 20 30 40 50
$ Billion 2011
8Employment Generated
Brokerage 35.6
Total Jobs Generated
12.9
Direct Jobs Generated
Building Management
36.6
13.0
Improvements
92.0
49.5
New Construction
175.3
77.2
Total 339.4
152.6
0 50 100 150 200 250 300 350 400
Full-time Equivalent Jobs (000s)
Personal Income Generated
Brokerage 1.8
Total Personal Income
0.6
Direct Personal Income
Building Management
1.8
0.6
Improvements
4.8
2.7
New Construction
9.8
4.5
Total 18.1
8.5
0 4 8 12 16 20
$ Billion 2011
9Key Economic Benefits continued
Corporate Profits Generated
Brokerage 2.3
Total Corporate Profits
1.0
Direct Corporate Profits
Building Management
2.3
0.9
Improvements
2.5
0.9
New Construction
5.3
1.6
Total 12.5
4.4
0 3 6 9 12 15
$ Billion 2011
Taxes Generated
2.6 Total Taxes
Corporate
0.9 Direct Taxes
4.9
Personal
2.1
7.2
Total
3.0
0 2 4 6 8 10
$ Billion 2011
10Introduction
The CRE Sector is crucial to Canada’s economy and standard of
living. The planning, design, development and construction of
commercial real estate buildings, and subsequently their daily
operations, generates significant amounts of economic activity. In
addition, the sector provides workspaces for millions of Canadians
and places for Canadians to shop, eat and play.
Key Terms
While millions of Canadians come and go daily from buildings con-
The Commercial Real Estate
structed and operated by the CRE Sector, its fundamental value to
Sector (CRE Sector) builds and
our communities, the Canadian economy and our social framework
operates private industrial, office
can sometimes be overlooked.
and retail/entertainment build-
ings. The CRE Sector does not
Gaining an understanding of the magnitude of the economic
include government owned build-
contribution of an important national asset, such as our stock of
ings or institutional facilities.
commercial real estate buildings, is of importance to multiple
stakeholders. Policy makers at the federal and provincial levels of
Gross Domestic Product (GDP)
government, as well as municipal planners and politicians, can make
is the total unduplicated value of
smarter decisions with better data and an improved perspective on
all goods and services produced
the sector as a whole. Investors, tenants and the multitude of com-
in Canada in one calendar year.
panies in Canada within this important sector will be better able to
This metric is used to measure
see how their businesses and decisions affect this sector and how
the total size of the Canadian
they are interconnected.
economy.
To fill this knowledge gap, REALpac and the NAIOP Research
Please refer to the Glossary for
Foundation approached Altus Group Economic Consulting (Altus
further details about key terms
Group) to prepare this study. The main purpose of this report is
and definitions.
to quantify the contribution of the CRE Sector to the Canadian
economy. This project is jointly funded by REALpac and the NAIOP
Research Foundation, with additional sponsorship from Altus Group.
This report takes a comprehensive approach to assessing the eco-
nomic contribution associated with key activities in the life cycle of
a building, including:
• The construction of new buildings (or major additions) including
the planning and site development, hard costs (actual construc-
tion activity, such as materials and equipment) and soft costs
(architecture and design, finance, consulting activities);
• Improvements to buildings, which is the construction spending
on an on-going basis for capital improvements to buildings and
tenant improvements (the construction associated with accom-
modating the requirements of new tenants); and
• The on-going operations of the building, including building
management (maintenance, leasing) and brokerage.
11Introduction continued
This report contains another three main sections as follows:
• The second section provides macroeconomic context to the
economic impact analysis, outlines the economic indicators mea-
sured in this analysis, and offers an overview of the sector;
• The third section presents the estimated economic benefits gener-
ated nationally by the CRE Sector in Canada, including economic
activity, Gross Domestic Product (GDP), employment, income,
government tax revenues and other benefits; and
• The fourth section discusses the distribution of economic benefits
by region, including Atlantic Canada, Quebec, Ontario, Manitoba/
Saskatchewan, Alberta and British Columbia.
In addition, an appendix is provided with detailed tables and infor-
mation on the methodology used in the report.
Research Methodology
The data in this report are derived from several sources, as listed
below:
• Statistics Canada: Data on capital expenditures (building improve-
ment and construction), investment in non-residential building
construction, building permits, the input-output model, and activ-
ities related to real estate brokerage and management are sourced
from Canada’s national statistical agency, Statistics Canada;
• Altus Group: Construction spending estimates of hard and soft
costs, site development costs and tenant improvement spending
are modeled by Altus Group and derived from the Altus Group
Cost Guide. Data are also collected from Altus InSite, Altus
Group’s online database of commercial real estate buildings in
Canada; and
• Secondary Sources: The analysis also uses data from Canada
Mortgage and Housing Corporation (CMHC), Canadian Real Estate
Association (CREA), Canada Revenue Agency (CRA) and the
finance ministry/department of each of the ten provinces.
The methodology employed in this study has two major components:
1. Estimations of Direct Activity: The estimates of economic activ-
ity within the various components of the industry draw heavily on
data from Statistics Canada and other sources as described above.
Where direct data are not available, estimates are calculated,
based on appropriate indirect sources of information; and
122. Analysis of Spinoff Activity: In addition to the direct activity (esti-
mated in 1. above), it is important to consider two more rounds
Key Terms of spinoff economic activity, including the indirect (suppliers of
goods and services to the CRE Sector) and induced (expenditure
A multiplier is a quantitative of income earned by the CRE Sector) rounds of activity. The
measure created by a particular analysis uses economic multipliers, which are derived from the
input-output based economic Statistics Canada’s Interprovincial Input-Output Model of the
model. It is an analytical answer Canadian Economy. These multipliers are applied to the direct
to a hypothetical question about activity (estimated in 1. above) to determine total economic activ-
how certain expenditures are ity. The input-output approach is the most appropriate approach
expected to affect the economy. to use in undertaking a study such as this as it very carefully maps
and tracks the detailed interrelatedness between all sectors of
the economy. In this way, the model is able to track the impact
from spending on construction and building operations back to all
aspects of the value chain.
A more detailed discussion of the Statistics Canada Input-Output
model can be found in Appendix D.
13Macroeconomic Context and Sector Overview
This section provides an overview of economic indicators used in
this report to measure the CRE Sector’s contribution to the Canadian
economy and illustrates recent trends in the sector.
Economic Benefits Measured by This Report
This report analyzes economic benefits of the CRE Sector in
Canada. The various benefits are generated by three major compo-
nents of the sector:
• The initial development and construction of commercial proper-
ties: The planning, design, site development and construction of
properties such as industrial buildings, office buildings and shop-
ping centres, contribute directly to the Canadian economy and
generate substantial “spinoff” benefits;
• Improvements to buildings: Improvements, including construction
spending on an on-going basis for capital improvements to struc-
tures and tenant improvements (the construction associated with
building interior space for new tenants), generate a substantial
economic contribution annually; and
• The on-going operations of commercial properties: A large number
of CRE Sector properties are managed by professional companies
that specialize in property management. Their primary activities
include daily maintenance and operations, leasing, collecting
rents, budgeting and maintaining records. These activities generate
billions of dollars in economic activity each year. In addition, com-
mercial properties, valued in billions of dollars, exchange hands
each year and generate value-add activities within brokerage and
other professional services firms.
To quantify the economic benefits of the CRE Sector, this report
focuses on several economic parameters, including:
• Economic activity: The volume of goods and services consumed
in the economy related to the development, construction and on-
going operation of the CRE Sector;
• Contribution to GDP: The value-added component of the eco-
nomic activities, a measure of the contribution of the activities to
Canada’s gross domestic product;
• Jobs: The number of jobs generated from activities of the CRE
Sector, including direct and spinoff jobs;
• Income: The amount of income generated through the various
economic activities, including wages, other labour earnings, mixed
income, and corporate profits; and
• Government tax revenues: Federal and provincial tax revenues,
primarily personal and corporate income taxes, and other payroll
deductions.
14The Commercial Real Estate Sector
In general, the CRE Sector includes three components, as described
below:
• Industrial: This category is composed of factories, warehouses,
Key Terms distribution centres, agricultural buildings, railway shops, aircraft
hangers, maintenance garages, equipment storage and workshops.
Included in the category “non- This category includes a wide range of properties, including tra-
residential real estate” are all of ditional industrial properties, such as food processing plants and
the CRE Sector building types as automobile parts factories, as well as advanced manufacturing
well as government buildings and facilities, such as pharmaceutical production units and IT equip-
institutional buildings. ment plants. During recent years, warehouses and distribution
centres have become an important part of this sector;
• Office: This category is composed of downtown office towers,
suburban offices, corporate campuses and other office buildings
owned by the private sector. Office towers and business parks are
home to Canada’s largest corporations and play a vital role in eco-
nomic development; and
• Retail and entertainment: This category is composed of shopping
centers, theatres, performance arts and cultural centres, restau-
rants and bars, and automotive dealerships. Each day, millions of
Canadians shop, eat and play at these facilities. These activities
significantly contribute to the Canadian economy and are impor-
tant in defining the country’s standard of living.
In addition, many companies and professionals are involved in the
on-going operation of the CRE Sector, such as building management
and commercial brokerage services. These organizations generate
significant economic contribution to the Canadian economy through
activities described as:
• Building management: Providing services in planning and manag-
ing CRE buildings, and ensuring services, such as security, health
and safety, and maintenance of the building, meet a satisfactory
level. Building managers also collect rents and search new tenants
on behalf of building owners; and
• Commercial brokerage services: Providing a connection between
buyers and sellers, and lessors and lessees of commercial proper-
ties, and facilitating transactions of CRE buildings.
15Macroeconomic Context and Sector Overview continued
Sector Overview
CRE Sector buildings are a significant component of Canada’s non-
residential building stock. Canada’s non-residential building stock
includes CRE Sector buildings along with government and institu-
Key Points tional buildings. This section sets out recent trends within Canada’s
non-residential building stock.
• The CRE Sector accounts for 49
percent of the non-residential
investment in Canada, which Total Capital Investment in Construction
totalled $44.3 billion in 2011.
Capital investment in non-residential buildings includes all new
construction (hard and soft costs including site development) and
improvements (renovations).
Figure 1
Trends in Non-Residential* Capital Investment
in Canada, Total Spending, 2007-2011
60 CRE Sector Investment 60
Other Non-Residential Real Estate Investment*
Total
48 CRE Sector % of Total 56
44.0 42.8 44.3
$ Billion (bars)
40.0
36 52
% (line)
38.7
24 48
22.5 21.5 23.0
20.4 21.6 22.7
20.0 22.8 19.7
18.3
12 44
0 40
2007 2008 2009 2010 2011
*Includes government-owned assets, institutional and commercial buildings that are not included in the CRE Sector.
Source: Altus Group Economic Consulting based on data from Statistics Canada
16As shown in Figure 1, above, the volume of capital investment in
non-residential building construction across Canada has struggled
over the last five years. Specific trends to note:
Key Points • After a modest decline during and immediately after the recession,
total capital investment in non-residential building construction in
• Ontario receives by far the Canada totalled some $44.3 billion in 2011, just surpassing the
largest amount of capital pre-recession high in 2008;
investment in Canada, • Capital investment by the CRE Sector, which includes industrial
accounting for 41 percent buildings, non-government office buildings and retail/entertain-
($18.2 billion) of the ment facilities, totalled $21.6 billion in 2011, accounting for half
investment in all non-residential of the total investment on non-residential construction; and
buildings and 36 percent • The share of CRE Sector investment of total spending in 2011 (49
($7.6 billion) of the investment percent) was somewhat lower than the share recorded before the
in CRE-only buildings. 2009 recession (53 percent in 2007 and 51 percent in 2008).
Figure 2
Total Investment* in Non-Residential Buildings
by Region, 2011
24
Investment % of Canada
41
20
18.2
16
$ Billion 2011
12 20 17
8.6
11 7.7
8
5.1 6 5
4 2.5 2.3
0
British Alberta Manitoba & Ontario Quebec Atlantic
Columbia Saskatchewan Canada
*Includes both new construction and renovation.
Source: Altus Group Economic Consulting based on data from Statistics Canada
17Macroeconomic Context and Sector Overview continued
By province, Ontario accounted for the largest share of non-
residential building construction, totalling $18.2 billion in 2011,
representing some 41 percent of Canada’s total, as seen in Figure 2.
Figure 3, below, shows that Ontario’s share of the CRE Sector is
smaller than its share of non-residential building construction. The
province accounted for about 36 percent of total construction invest-
ment in the CRE Sector, which is still by far, the largest market in
Canada. Refer to Appendix A-1 for further details on total investment
in non-residential buildings in each region.
Figure 3
CRE Sector Capital Investment by Region, 2011
10
Investment % of Canada
36
8 7.6
23
6
$ Billion 2011
5.0 20
4.2
4
11
2.5 6
5
2 1.3
1.0
0
British Alberta Manitoba & Ontario Quebec Atlantic
Columbia Saskatchewan Canada
Source: Altus Group Economic Consulting based on data from Statistics Canada
18Capital Investment in New Construction and Renovation
Capital investment in non-residential building construction for new
construction and renovation has been substantial over the five-year
period under review. As shown in Figure 4 and Figure 5, below,
investment in new building construction was approximately $30.7
billion in 2011, while a further $13.7 billion was invested into
building renovations and improvements in the same year. These
Key Points
two values combined ($21.6 billion), can also be seen in Figure 1,
representing the total capital investment by the CRE Sector in 2011.
• Capital investment in new CRE
Sector buildings was $14.9 bil-
lion in 2011 and investment in Other notable trends include:
renovations was $6.7 billion in
the same year. • Over the last several years, renovation investment in the non resi-
dential construction sector has been growing while the investment
in new construction modestly declined; and
• Consistent with the overall trends in the non-residential construc-
tion sector, investment in new CRE Sector buildings declined
some $0.65 billion from its recent peak in 2008 to $14.9 billion
in 2011, while spending on renovation increased by $1.9 billion
during the same period, to $6.7 billion in 2011.
For further details on capital investment in new construction and
renovations in each region, refer to tables in Appendix A-2 and A-3.
Key Terms
Capital investment in new Soft costs are a category of Tenant improvements are a
construction consists of spending construction costs that reflects category of construction costs that
on the construction of new the professional services, and reflects improvements made to the
buildings and major additions administrative and management interior of a building to meet the
to existing buildings. The three processes required to support the needs of a specific tenant.
components of new construction construction project.
include site development, hard Other capital upgrades are a
costs and soft costs. Capital investment in renovations category of construction costs
consists of spending on the that includes regular renovation
Site development is a category alteration and improvements spending, which is necessary to
of construction activity that of existing non-residential ensure the daily function of the
reflects improvements made to buildings. The two components CRE building.
the site, such as grading and of renovations are tenant
drainage, before a building can be improvements and other capital
constructed. upgrades.
Hard costs are a category of
construction costs that reflects
the outlays for the building
construction phase such as
materials and equipment.
19Macroeconomic Context and Sector Overview continued
Figure 4
Trends in Non-Residential* Capital Investment
in Canada, New Construction, 2007-2011
50 CRE Sector Investment 60
Other Non-Residential Real Estate Investment*
Total
40 CRE Sector % of Total 56
$ Billion (bars)
32.5
30 52
% (line)
29.8 29.3 30.7
29.2
20 48
16.8
15.5 15.7 16.0 14.9 15.8
13.6 13.8 13.3
10 16.0 44
0 40
2007 2008 2009 2010 2011
*Includes government-owned assets, institutional and commercial buildings that are not included in the CRE Sector.
Source: Altus Group Economic Consulting based on data from Statistics Canada
Figure 5
Trends in Non-Residential* Capital Investment
in Canada, Renovation, 2007-2011
20 CRE Sector Investment 60
Other Non-Residential Real Estate Investment*
Total
16 CRE Sector % of Total 56
13.3 13.7
12.9
12 52
% (line)
$ Billion (bars)
11.5
9.5
8 48
7.0
6.2 6.7 6.4 6.7 6.9
5.7 5.8
4 4.8 4.7 44
0 40
2007 2008 2009 2010 2011
*Includes government-owned assets, institutional and commercial buildings that are not included in the CRE Sector.
Source: Altus Group Economic Consulting based on data from Statistics Canada
20Trends in CRE Sector Capital Investment in Canada,
2007-2011
Over the last five years, capital investment in CRE Sector buildings
has been relatively stable, as seen in Figure 6.
In total, capital investment in CRE Sector buildings averaged
about $21 billion per year during the 2007-2011 period. Capital
investment in the sector declined during the 2009-2010 period, pri-
marily due to the decline in new building construction, but recovered
strongly in 2011. As compared to new construction, capital invest-
ment in renovation has been steady throughout the period.
Figure 6
Trends in CRE Sector Capital Investment, Canada 2007-2011
30
Renovation
New Construction
25
22.5
21.6
20.4 20.0 19.7
20
$ Billion
15
10
5
0
2007 2008 2009 2010 2011
Source: Altus Group Economic Consulting based on data from Statistics Canada
21Macroeconomic Context and Sector Overview continued
Figure 7
Trends in CRE Sector Capital Investment by Asset Type
Canada, 2007-2011
10
9.0 Industrial Private Office Retail
8.1
8.0 7.7
8 7.5
7.0 7.2 7.0
6.4 6.6
6.2 6.4
6.0
6 5.3 5.6
$ Billion
4
2
0
2007 2008 2009 2010 2011
Source: Altus Group Economic Consulting based on data from Statistics Canada
Figure 7, above, illustrates capital investment in the CRE Sector by
asset type during the 2007-2011 period.
Capital investment in industrial and retail properties declined during
Key Points the recession and aftermath (between 2008 and 2010), however,
investment in both asset classes recovered somewhat in 2011 to
• Capital investment (both new $6.0 and $7.5 billion, respectively. In contrast, capital investment
construction and renovation) (both new construction and renovation) in private office buildings
in private office buildings has has increased dramatically from $5.3 billion in 2007 to $8.1 billion
increased dramatically from in 2011.
$5.3 billion in 2007 to $8.1
billion in 2011, without any Generally, the lead-time to undertake an office building project is
decline recorded during the longer than either industrial or retail. The uncertainty during the
recession years (2009-2010).
recession put many industrial and retail projects “on hold” but office
project that were well underway generally proceeded at pace through
the recession.
22Capital Investment by Type of Cost
Capital investment in the CRE Sector in 2011 was about $21.6
billion, as presented previously in Figure 6. In Figure 8, the break-
down of spending on new building construction into hard costs,
soft costs and site development is displayed as well as the break-
down of renovation spending into tenant improvements and other
capital upgrades.
In 2011, hard costs (spending on actual construction) accounted for
some $10.8 billion, which was about half of the total construction
spending in the CRE Sector that year. Soft costs (design, financing,
consulting) and site development costs were $2.6 billion and $1.5
Key Points billion, respectively. Additionally, the total renovation spending was
$6.8 billion in 2011. Tenant improvements accounted for some
• Half of the annual investment $1.8 billion, and the rest, approximately $5.0 billion, was related to
in the CRE Sector is for actual other capital upgrades and spending.
construction (hard costs) of new
facilities. For further information on detailed construction spending in each
region, refer to the tables in Appendix A-7.
Figure 8
CRE Sector Capital Investment in Canada, 2011
25
21.6
20
SPENDING ON NEW BUILDINGS RENOVATIONS
15
$ Billion
10.8
10
5.0
5
2.6 1.8
1.5
0
Hard Soft Site Tenant Other Total
Costs Costs Development Improvement Capital
Upgrades*
* Includes regular renovation spending such as upgrading a building’s lobby and repainting exterior walls.
Source: Altus Group Economic Consulting based on data from Statistics Canada
23Macroeconomic Context and Sector Overview continued
On-going Operations
The on-going operations of CRE Sector buildings generates con-
siderable economic activity and jobs through a variety of functions
such as building management, leasing and maintenance (collec-
tively measured as the volume of management fees), and economic
value-add activities related to the purchase and sale of buildings
(measured as the volume of brokerage fees). Figure 9 illustrates the
total management fees generated by the CRE Sector in 2011.
Figure 9
CRE Management Fees, 2011
Industrial Office Retail Others Total
Region (Millions of Dollars)
Atlantic Canada 42 36 34 12 125
Quebec 226 234 183 72 716
Ontario 492 380 388 140 1,400
Manitoba and Saskatchewan 78 68 64 23 234
Alberta 148 145 119 46 457
British Columbia 157 149 167 53 525
Total 1,143 1,013 956 346 3,457
Source: Altus Group Economic Consulting
Notable figures in the generation of management fees include:
• In total, the CRE Sector in Canada generated about $3.5 billion in
management fees in 2011; and
• Among the regions, Ontario generated the largest volume of man-
agement fees, accounting for some 40 percent of the total.
24Figure 10 illustrates total brokerage fees generated from transactions
of commercial properties in 2011.
Figure 10
CRE Brokerage Fees, 2011
Industrial Office Retail Others Total
Region (Millions of Dollars)
Atlantic Canada 40 13 31 79 163
Quebec 56 118 129 238 541
Ontario 169 809 555 568 2,102
Manitoba and Saskatchewan 27 29 28 43 127
Alberta 72 165 81 135 453
British Columbia 6 18 22 31 78
Total 370 1,153 846 1,095 3,464
Source: Altus Group Economic Consulting
Notable figures in the generation of brokerage fees include:
• Total brokerage fees generated in Canada were some $3.5 billion
in 2011; and
• Transactions of office buildings generated $1.2 billion in broker-
age fees, predominantly among commercial properties; and
• Transactions of other commercial properties, such as hotels and
development land, generated some $1.1 billion in brokerage fees;
also a big contributor to the CRE Sector.
25Macroeconomic Context and Sector Overview continued
Overall Output of the CRE Sector in 2011
Figure 11 illustrates the overall output of the CRE Sector in 2011
by dividing the output into four components; namely, land develop-
ment, new construction, renovation and on-going operations.
Figure 11
Output of the CRE Sector By Component, Canada, 2011
Land Development 1.5
New Construction
Hard Costs 10.8
Soft Costs 2.6
Renovation 6.8
On-Going Operation
Property Management Fees 3.5
Brokerage Fees 3.5
0 3 6 9 12 15
$ Billion 2011
Source: Altus Group Economic Consulting
Key Point By adding all of the components together, it can be shown that the
total output of the Canadian CRE Sector was $28.5 billion in 2011.
• On-going operation of CRE
buildings in Canada generated Other points include:
$7.0 billion in 2011 with
property management and • Capital investment in new buildings was the largest component of
brokerage activities generating the sector’s output, followed by investment in on-going operations
approximately $3.5 billion each. (both management and brokerage fees); and
• In general, building management companies and commercial real
estate brokerage firms generated similar amounts of economic
activity in 2011.
26Economic Benefits of the Commercial Real Estate
Sector in Canada
This section presents the economic benefits arising from construc-
tion spending and on-going operations in the CRE Sector for Canada
as a whole.
The non-tax benefits are calculated using multipliers derived from
the Statistics Canada Inter-provincial Input-Output Model of the
Canadian Economy, and distinguish that there are three “rounds”
of activity:
• The direct round of activity (actual economic activities and actual
jobs within the CRE Sector); plus
• Two spinoff rounds of activity:
• The indirect round (providers of goods and services to the CRE
Sector); and
• The induced round (economic activity and jobs related to the
spending of incomes earned by workers in the sector).
In this section, economic benefits are generally expressed as
“direct” impacts (only the direct round is included) and “total”
impacts (benefits of all three rounds are included).
The tax benefits utilize applicable tax rates and policies in effect for
2011.
For reference, a detailed description of the Input-Output Model
methodology is provided in Appendix D.
27Economic Benefits of the Commercial Real Estate Sector in Canada continued
Economic Activity
The construction spending on buildings in the CRE Sector and the on-going
Key Points operation of these buildings generated some $63.3 billion of economic
activity across Canada in 2011, as shown in Figure 12, below.
• The CRE Sector is directly
engaged in $28.5 billion Directly, the sector generated economic activity as follows:
worth of activity each year, but
• New construction — $14.9 billion;
accounting for the activity of
• Improvements — $6.8 billion;
suppliers and spinoff impacts,
• Property/building management — $3.5 billion; and
the total activity related to CRE
• Brokerage services — $3.5 billion.
is $63.3 billion in 2011.
After two spinoff rounds of activity, the sector generated economic
• This value of economic activ-
activity as follows:
ity is more than twice as large
as the entire economy of the • New construction — $33.1 billion;
province of Newfoundland & • Improvements — $14.2 billion;
Labrador. • Property/building management — $8.1 billion; and
• Brokerage services — $8.0 billion.
The magnitude of economic activity generated by the CRE Sector, there-
fore, is significant. To put this value into perspective, the economic
activity of the Canadian CRE Sector is more than twice as large as the
entire economy of the province of Newfoundland & Labrador.
For further information on the different rounds of economic activity and
the benefits generated in each of the above categories, refer to the table
in Appendix B.
Figure 12
Economic Benefits of the CRE Sector in Canada,
Total Economic Activity
Brokerage 8.0
Total
3.5
Direct
Property Management
8.1
3.5
Improvements*
14.2
6.8
New Construction**
33.1
14.9
Total 63.3
28.5
0 10 20 30 40 50 60 70
$ Billion 2011
28 *Includes both tenant improvement and other capital upgrades.
**Includes “hard” and “soft” construction expenditure, and site development.
Source: Altus Group Economic Consulting based on Statistics Canada Input-Output ModelGDP
GDP measures the value of the final goods and services produced in
Key Point Canada. Whereas gross economic activity records all economic trans-
actions in Canada, GDP includes only the value-added component
• The total contribution of the of those transactions. The construction spending on buildings in the
CRE Sector to Canada’s GDP CRE Sector and the on-going operation of these buildings contrib-
is $32.4 billion, which is more uted sizably to the nation’s GDP.
than the total GDP of New
Brunswick. Overall, the sector generated some $32.4 billion to Canada’s GDP in
2011, as shown in Figure 13, below.
Directly, the sector contributed to the nation’s GDP as follows:
• New construction — $6.6 billion;
• Improvements — $3.8 billion;
• Property/building management — $1.6 billion; and
• Brokerage services — $1.7 billion.
In total, the sector contributed to the nation’s GDP as follows:
• New construction — $16.2 billion;
• Improvements — $7.8 billion;
• Property/building management — $4.2 billion; and
• Brokerage services — $4.2 billion.
Figure 13
Economic Benefits of the CRE Sector in Canada, GDP
Brokerage 4.2
1.7 Total
Direct
Property Management 4.2
1.6
Improvements* 7.8
3.8
New Construction**
16.2
6.6
Total 32.4
13.8
0 10 20 30 40 50
$ Billion 2011
*Includes both tenant improvement and other capital upgrades.
**Includes “hard” and “soft” construction expenditure, and site development.
Source: Altus Group Economic Consulting based on Statistics Canada Input-Output Model
29Economic Benefits of the Commercial Real Estate Sector in Canada continued
All told, the GDP, or the value-added component of the CRE Sector
is very significant. Also, the sector as a whole is an important con-
tributor to overall Canadian GDP. The value-added component of the
CRE Sector alone is more than the GDP of New Brunswick.
Jobs
Thousands of jobs have been created by the CRE Sector in Canada
and many are high-paying positions in a wide array of industries.
Key Terms Directly, the sector employs a large number of real estate profession-
als, including property development professionals (project managers,
Full-time equivalent jobs repre- designers, architects and engineers), building managers and brokers,
sents the number of workers that and thousands of skilled trade workers. Indirectly, the sector sup-
would be employed for a full‐year; ports various high-paying jobs, such as financial and legal services
however, that includes both full professionals, architects, engineers, millwrights, and dozens of other
and permanent part-time jobs at professions and trade classes within the many businesses “down-
the ratios appropriate for each of stream” that benefit from this investment.
the industries involved.
Overall, the sector created some 339,400 jobs for Canadians in
2011, as is shown in Figure 14.
Directly, the sector created jobs as follows:
• New construction — 77,200;
• Improvements — 49,500;
• Property/building management — 13,000; and
• Brokerage services — 12,900.
Key Point
In total, the sector created jobs as follows:
• The total number of jobs cre-
ated in the CRE Sector in 2011
(340,000) is roughly equivalent • New construction — 175,300;
to the total employment in the • Improvements — 92,000;
entire Canadian agriculture • Property/building management — 36,600; and
industry. • Brokerage services — 35,600.
All told, the CRE Sector is an extraordinarily important generator of
skilled jobs in Canada. Taken together, the nearly 340,000 jobs this
sector supports is the equivalent of total employment in the entire
Canadian agriculture industry.
30Figure 14
Economic Benefits of the CRE Sector in Canada, Jobs
Brokerage 35.6
Total
12.9
Direct
Building Management
36.6
13.0
Improvements*
92.0
49.5
New Construction**
175.3
77.2
Total 339.4
152.6
0 50 100 150 200 250 300 350 400
Full-time Equivalent Jobs (000s)
*Includes both tenant improvement and other capital upgrades.
**Includes “hard” and “soft” construction expenditure, and site development.
Source: Altus Group Economic Consulting based on Statistics Canada Input-Output Model
Personal Income
The employment supported by the CRE Sector generated billions of
Key Point dollars in personal (labour) income for Canadians. On average, an
employee in the CRE Sector earns more than $50,000 each year.
• The $18.1 billion in personal The sector generated some $18.1 billion in personal income for
(labour) income generated in the Canadians in 2011, as shown in Figure 15.
sector is more than twice the
labour income of the Canadian Directly, the CRE Sector generated personal income as follows:
agriculture, forestry, and fishing
industries combined. • New construction — $4.5 billion;
• Improvements — $2.7 billion;
• Property/building management — $0.6 billion; and
• Brokerage services — $0.6 billion.
31Economic Benefits of the Commercial Real Estate Sector in Canada continued
In total, the sector generated personal income as follows:
• New construction — $9.8 billion;
• Improvements — $4.8 billion;
• Property/building management — $1.8 billion; and
• Brokerage services — $1.8 billion.
Overall, the CRE Sector is a significant source of income for thousands
of Canadians. As a comparison, the $18.1 billion in personal income
generated in the sector is more than twice the personal income of the
Canadian agriculture, forestry, and fishing industries combined.
Figure 15
Economic Benefits of the CRE Sector in Canada,
Personal Income
Brokerage 1.8
Total
0.6
Direct
Building Management
1.8
0.6
Improvements*
4.8
2.7
New Construction**
9.8
4.5
Total 18.1
8.5
0 4 8 12 16 20
$ Billion 2011
*Includes both tenant improvement and other capital upgrades.
**Includes “hard” and “soft” construction expenditure, and site development.
Source: Altus Group Economic Consulting based on Statistics Canada Input-Output Model
32Corporate Profits
In 2011, all economic activities from the CRE Sector generated
$12.5 billion in profits for Canadian companies, ranging from small
to large corporations, as shown in Figure 16, below.
There is a healthy mix of small, medium and large firms in the con-
struction industry. However, many commercial building managers
are large corporations owned by pension funds and major insurance
companies. The profits generated in the CRE sector will flow back into
these pension and insurance funds, benefiting millions of Canadians.
Directly, the sector generated corporate profits as follows:
• New construction — $1.6 billion;
• Improvements — $0.9 billion;
• Property/building management — $0.9 billion; and
• Brokerage services — $1.0 billion.
In total, the sector generated corporate profits as follows:
• New construction — $5.3 billion;
• Improvements — $2.5 billion;
• Property/building management — $2.3 billion; and
• Brokerage services — $2.3 billion.
Figure 16
Economic Benefits of the CRE Sector in Canada,
Corporate Profits
Brokerage 2.3
Total
1.0
Direct
Building Management
2.3
0.9
Improvements*
2.5
0.9
New Construction**
5.3
1.6
Total 12.5
4.4
0 3 6 9 12 15
$ Billion 2011
*Includes both tenant improvement and other capital upgrades.
**Includes “hard” and “soft” construction expenditure, and site development.
Source: Altus Group Economic Consulting based on Statistics Canada Input-Output Model
33Economic Benefits of the Commercial Real Estate Sector in Canada continued
Personal Taxes
The CRE Sector generated some $4.5 billion in revenue for govern-
ments, in the form of federal and provincial personal taxes and other
payroll deductions in 2011, as shown in Figure 17.
Directly, the sector generated:
• $1.0 billion in federal income taxes;
• $0.6 billion in provincial income taxes; and
• $0.5 billion in other payroll deductions.
In total, the sector generated:
• $2.2 billion in federal income taxes;
• $1.3 billion in provincial income taxes; and
• $1.1 billion in other payroll deductions.
Figure 17
Economic Benefits of the CRE Sector in Canada,
Personal Taxes
Other Payroll Deductions* 1.1
Total
0.5 Direct
1.3
Provincial Income Taxes
0.6
2.2
Federal Income Taxes
1.0
4.6
Total
2.1
0 1 2 3 4 5
$ Billion 2011
*Includes Canadian Pension Plan and Employment Insurance.
Source: Altus Group Economic Consulting
34Corporate Taxes
Key Point
The CRE Sector generated some $2.6 billion in corporate taxes for
• Governments earn over $7 bil- the federal and provincial governments in Canada in 2011, as shown
lion per year in tax revenues in Figure 18.
(personal and corporate com-
bined) related to activities in Directly, the sector generated:
the CRE Sector.
• $0.5 billion in federal corporate taxes; and
• $0.4 billion in provincial corporate taxes.
In total, the sector generated:
• $1.5 billion in federal corporate taxes; and
• $1.1 billion in provincial corporate taxes.
Figure 18
Economic Benefits of the CRE Sector in Canada,
Corporate Taxes
1.1 Total
Provincial Income Taxes
0.4 Direct
1.5
Federal Income Taxes
0.5
2.6
Total
0.9
0.0 0.5 1.0 1.5 2.0 2.5 3.0
$ Billion 2011
Source: Altus Group Economic Consulting
35Economic Benefits of the Commercial Real Estate Sector in Canada continued
Other Economic Benefits
Beyond the strict numbers of economic activity, spinoff benefits,
jobs created, income earned and taxes generated, the CRE Sector
is also responsible for providing a tremendous benefit to communi-
ties across Canada by providing high-quality spaces for Canadians to
work, eat, shop and play.
The development of commercial and industrial spaces, including
land development, in a timely manner in local communities is criti-
cal for economic development. Canada’s economic strength stems
from economic development at the local community level. A commu-
nity’s ability to attract and retain talent and young workers is directly
related to the quality of the workspaces available and to the array of
amenities offered across the community, including attractive shop-
ping centres, restaurants, other retail facilities and entertainment
destinations. Canada’s CRE Sector provides all of these spaces. And,
while commercial real estate is developed within municipal zoning
and planning frameworks, the initiative to bring forward new devel-
opments when required, tends to rest squarely upon the numerous
strong entrepreneurial firms found within Canada’s CRE Sector.
Taken together, well-functioning local communities, with a healthy
pace of economic development that is supported by a strong and
active CRE Sector, help to produce a robust pace of economic devel-
opment nationwide. Many of the large companies within the CRE
Sector have operations across Canada and are active within count-
less communities in large urban areas and small.
The strength and scope of the sector provides high-quality work
spaces that support some of Canada’s leading industries such as
financial services, advanced manufacturing, information technology,
food distribution and retail.
Buildings, workspaces and facilities provided by Canada’s CRE Sector
also foster economic development in local communities by providing a
variety of employment opportunities. Successful retail shopping cen-
tres house tenants providing full and part-time work at a variety of skill
levels, which closely match labour force requirements.
The CRE Sector provides tremendous economic benefits and serves
as the economic development backbone to communities across the
country. In addition, properties owned by the CRE Sector provide
substantial revenue to municipalities and school boards across
Canada through realty taxes. Overall, the CRE Sector plays a crucial
role in promoting economic development and improving Canada’s
standard of living.
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